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Liquidity planning has become a controversial topic for clearing houses, after the Commodity Futures Trading Commission (CFTC) ruled earlier this month that a CCP could only count government securities as part of its liquidity resources if they are supported by committed funding arrangements – standby repo facilities, for instance – that would allow the clearing house to convert securities into cash at the drop of a hat. "It is extremely important that CCPs organise themselves to make sure they can provide the necessary resilience plan through the waterfall arrangements that are in place – and through their own liquidity insurances – to the extent they can cover the failure of one or two major institutions", Carney said.
By February 2014, UK-regulated CCPs will be required to introduce loss-allocation rules that specify how they would absorb any end-of-waterfall losses arising from one or more clearing members defaulting. This could include haircuts of variation or initial margin, or the forced close-out of cleared trades.
CCPs will also be required to introduce similar arrangements for losses arising from other sources – such as investment losses by May 2014. "We made absolutely clear that we want CCPs to have the same detailed, credible recovery and resolution plans as the big banks. There has been a lot of progress made over the past six to 12 months to find the appropriate tools to do so. In the CCP context that means putting in place loss-allocation rules for clearing members," said Andrew Haldane, executive director financial stability at the BoE.